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Nasdaq Up 6.5% YTD: More Rally Ahead for ETFs?

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In the wake of a remarkable year for Wall Street in 2023 thanks mainly to the surge seen in tech-heavy Nasdaq. Now, investors are eyeing the potential for continued growth, particularly in the technology sector.

In fact, the Nasdaq overcame the downturn of the bear market to climb by 43% last year. And historical data offers a great picture for 2024 as well. Looking back to 1972, the year after a market rebound, the Nasdaq has historically seen an average increase of 19%, indicating that the current market upswing could continue.

The performance varied significantly, from a modest rise of 7% in 1986 to a substantial surge of 38% in 2013. With the economy showing signs of improvement, the conditions seem favorable for continued market growth, per Motley Fool, as quoted on Yahoo Finance.

Amidst this backdrop, two tech behemoths, Microsoft and Amazon, stand out for their pioneering efforts in leveraging artificial intelligence (AI) to drive innovation and growth.

Microsoft's AI Revolution

Under the leadership of CEO Satya Nadella, Microsoft has emerged as a leader in the AI landscape. Nadella's vision has propelled Microsoft's AI initiatives, with Copilot serving as a prime example of the company's success.

Copilot, integrated deeply into Microsoft's core products, has shown substantial productivity gains, with studies indicating up to a 70% improvement in specific work tasks. Microsoft's strategic move to provide out-of-the-box integrations with third-party platforms further expands Copilot's reach, enhancing its revenue potential.

Despite the buzz around AI in the past year, Microsoft is just scratching the surface of what's possible. The advancements in AI are likely to spark growth in Microsoft's cloud and software services.

Azure's Ascendancy

Microsoft's cloud platform, Azure, has witnessed remarkable growth, particularly in AI services. Azure's Cloud revenue surged 30% year over year, outpacing competitors like Amazon Web Services (AWS) and Google Cloud. The demand for AI services has been a significant driver of Azure's growth, underscoring Microsoft's prowess in capturing market share in the AI-driven cloud computing landscape.

Amazon's AI Odyssey

While historically known for its e-commerce dominance, Amazon has been quietly making strides in the AI arena. The company's investment in Anthropic, coupled with strategic partnerships with AWS, marks a pivotal shift towards AI-driven growth.

Anthropic's utilization of AWS for AI model training and Amazon's development of proprietary chips signal Amazon's commitment to AI innovation and its potential to revitalize AWS revenue growth.

Beyond AI: A Closer Look at Microsoft's Growth Opportunities

Even though Artificial Intelligence (AI) grabs most of the headlines, Microsoft has more tricks up its sleeve. The company faced a rough patch when the demand for personal computers (PCs) went down, affecting a big chunk of its income. However, things are looking up now. The PC market is getting back on its feet, with Microsoft's related sales jumping 19% from last year. This is the biggest growth spurt in almost three years! As the PC market continues to recover, it's expected to keep boosting Microsoft's financial health.

A Fair Price for Future Growth

When we talk about how much it costs to buy a piece of Microsoft (its valuation), it might seem a bit pricey at 37 times its earnings and 13 times its sales. However, given the exciting growth opportunities ahead and Microsoft's proven ability to make the most of them, paying a little extra makes sense.

Fed Rate Cut Likely in Late 2024

Despite the market's speculation regarding potential interest rate cuts, Fed officials reiterated their cautious approach.Boston Fed President Susan Collins emphasized that rate cuts could be on the horizon "later this year." However, the central bank would require additional evidence of inflation cooling before taking such actions. This stance underscores that the Fed is also weighing the options of rate cuts – a monetary policy stance investors are craving for.

ETFs in Focus

Against this backdrop, below we highlight a few Nasdaq ETFs like Invesco QQQ (QQQ - Free Report) , Invesco NASDAQ 100 ETF (QQQM - Free Report) , First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW - Free Report) , Invesco NASDAQ Next Gen 100 ETF (QQQJ - Free Report) and Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE - Free Report) .





(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)

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